There’s No Right Way to Enjoy Financial Independence

As I resume writing about money, I've re-discovered just how opinionated people can be about personal finance. For some reason, many folks believe that there's a “right” way to pay off debt, invest for the future, and spend what you've earned. A corollary to this is the belief that anything that's not the “right” way is, therefor, the wrong way.

I don't agree.

I've long held that there's no one right way to do any of this stuff. There's no right way to pay off debt. There's no right way to invest. There's no right way to spend.

Sure, some methods offer quicker results or better returns, but that doesn't mean that they're right. It's great to push for optimal solutions, which is why we talk about paying off high-interest debt first and choosing index funds over other types of investments. But optimal and right are not the same thing. And “best” is something else entirely. (Sometimes the optimal method is the best method; other times it's not.)

If there's one lesson I've learned during a decade of writing about personal finance, it's this: Do what works for you.

We are not robots. We are human beings, which means we're complex emotional and psychological creatures. We don't make decisions based on optimal mathematical outcomes. We make decisions based on what we believe will make us happy. (What will actually make us happy is often different from what we believe will make us happy, but that's another story.)

We each have different wants and needs. We have different desires and preferences. What's right for me probably won't be right for you. Let's look at some real-life examples of the issue I'm trying to describe.

Four Approaches to Financial Independence

As you know, Financial Independence occurs when you have enough saved to support your spending levels for the rest of your life. But what does that mean exactly? A lot of people want a magical number that will indicate when they've accumulated enough to retire. But what is that number? Can you say you're FI once you have a million dollars in the bank? Two million?

Truthfully, there isn't a single magical number that's right for everyone. Financial independence comes at different places for different people. It depends on how much you want to spend and what you're willing to do to maintain your lifestyle.

At $12,000 per year, you could practice “extreme early retirement”. Take Jacob Lund Fisker, for example, the original early retirement blogger. He and his wife currently live on about $10,000 per year. At this level, your life is very DIY. You intentionally remove yourself from the economic machine. Personally, I don't want to live at this level. But for some, like Jacob, it's plenty.

At $24,000 per year, you and your family could enjoy a modest lifestyle in an area with low cost of living. This is what Pete (a.k.a.Mr. Money Mustache) does. That means using 2-1/2 tanks of gas each year and dining out only once every few months, but making the most of your environment. It requires conscious effort.

At $36,000 per year, you could live like me — which means in extreme comfort. When I'm not on a cross-country RV trip, I spend about $3000 per month. I live in a top-floor condo on the Willamette River in Portland. I buy groceries at an organic market. Kim and I eat out once a week. But we intentionally cut back in other areas, such as transportation in order to afford all of this.

At $48,000 per year, you could live like the average American family, enjoying all of the luxury that entails: a nice car, a nice home, and wanting for nearly nothing. (Actually, the average American household spends $54,000 per year, but we'll use $48,000 because it makes a pleasing proportion to these other levels.) At this level, your life is luxurious but you have to work more to maintain it.

People can be financially independent at any of these levels of spending. If you have billions in the bank, you could be financially independent while spending $10 million per year.

Let's use my friend Jim from Wallet Hacks as an example. He too is financially independent. Because he's managed to accumulate so much wealth, he lives what he describes as a “decadent” lifestyle. His family spends $120,000 per year, which includes $4500 per month for a mortgage and $2800 for daycare. (Jim spends as much on daycare as I do for a year of normal living!)

“I'm an extreme case,” Jim told me. He spends a lot, and he knows it. But he also knows that his savings can support this level of spending.

My colleagues and I have each decided the level of comfort that's right for us and our situation. There's no right or wrong answer, but no matter which level we choose, there are costs. You have to be willing to pay the price for the lifestyle you choose.

Jacob is willing to pay the price in terms of time and DIY to spend less than $12,000 per year in early retirement. I'm not. Pete is willing to pay the price in terms of comfort and convenience to spend less than $24,000 per year in early retirement. I'm not. I'm willing to pay the price in terms of dollars to enjoy the luxury life at $36,000 per year. Jacob and Pete are not.

None of us is wrong. Each of us is right — for ourselves. And you are right for you, so long as you deliberately choose to pay the cost — in time, effort, and money — required for your lifestyle.

Ultimately it comes back — as it always does — to knowing what you want from life, from having goals and purpose. When you're clear on your mission, you can make decisions to support your own individual path to happiness.

A Question of Values

You probably won't be surprised to learn that personal-finance bloggers talk a lot amongst themselves behind the scenes. We're always emailing each other about various problems and questions and points of discussion.

I recently asked Jacob about the notion of “leanFIRE”, which is a term used to describe folks who retire early with less than $40,000 per year of spending. I liked his response:

I think relative perceptions follow the Wheaton scale in that anyone who spends 25% less than their subjective peer group will consider themselves lean, whereas they would probably consider anyone who spends 50% less to be too extreme; 75% less is just crazy. Whereas someone who spends 25% more would be thought of as wasteful and 50% would just be reckless and out of control.

I think this is a great way to frame the issue.

Each of us naturally thinks that our choices are best (if not “right”). We think we have things figured out. Because we think our solution is the best solution, we think that others who choose to be more than extreme than ourselves are borderline crazy. At the same time, we think those that havne't learned to live like we do are lackadaisical or lazy.

In reality, neither is true. As I said before, each of us is different. I don't want to live like Jacob or Pete. I like my lifestyle. Could I live on $24,000 per year (or $12,000)? Sure, if I had to. But I don't have to and I don't want to. But that doesn't mean I'm right and Pete is wrong. It just means we have different priorities and values.

As I preached at Get Rich Slowly, so I'm preaching now at Money Boss: Do what works for you.

In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.

Thanks for including my story, I jokingly called it decadent in your Facebook post talking about how you and the other FI-ers spent less than a few thousand dollars a month. I think that $120,000 a year in expenses in our area (near Washington D.C.) isn’t especially decadent overall — it just looks that way compared to you all! The higher cost of living accounts for some of that, also the higher earning potential too, so the high expense number is mitigated a bit by a higher income number. But as you say, do what works for you and this… Read more »

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Tyler Karaszewski

4 years ago

We drove up through your hometown this past week J.D., on our way to Washington where we were checking out some of the islands around Puget Sound for the purpose of potentially moving away from San Francisco one day in the not-too-distant future. It you want to live on $12k or $24k or even $36k a year, you can’t live in the SF Bay Area unless you’ve already paid off a home (or do something completely non-traditional, like live in an RV). The median home price in (for example) Anacortes, WA is about $325k, as opposed to as opposed to… Read more »

The entertaining part of that is that Anacortes is “affectionately” known as Cantaffordit by the locals up here. 😉 There are a lot of folks moving up to the Olympic Peninsula and San Juan area from California these days so be careful – home prices are rising rapidly up here in the more desirable areas.

@Tyler – We looked at Puget Sound a few years ago when prices were much lower. Also check out the “other side” at Ports Townsend (ferry access to Seattle), Ludlow, Hadlock, and Angeles. Angeles is still cheap but it’s the literally the end of the world. Going south is also interesting. Vicki Robin lives on Whidbey Island. There’s also Union where Bill Gates has a giant house. Between Union and Pt Townsend there’s a lot of “cabins” that can be had for about 100k last time I looked. In Anacortes, boat slips with liveaboard rights currently come in at 75k… Read more »

My husband and I just moved away from Port Townsend. The housing shortage and escalating prices are real there, so are the politics of California, so that may or may not make it desirable to some. Sequim is a super popular destination for the Californians. Hadlock is pretty much meth-central these days. I wouldn’t recommend it to anyone. Although the donut shop there has some of the best donuts ever baked. Ludlow is super popular with the retirees. Port Angeles is a great town, in my opinion, but might be a big adjustment for people coming from more “cultured” places.… Read more »

I rent in the SF Bay Area and I spend about 25K per year as a single person. I admit I wouldn’t be able to do this if I had to pay market rent. I have a merciful landlord who hasn’t jacked up the rent as much they could have. However, even at market rate, I could live on 36K per year–and I’m not living a Jacob Lund Fisker lifestyle (not that there’s anything wrong with that).

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Joe

4 years ago

Great article. I think the continuum of examples you have laid out is especially valuable. It puts the decision making process in your readers’ hands and gives people the perception of choice.

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Jacob Lund Fisker

4 years ago

Your observation of intentional economic independence is apt. My goal/motivation is indeed to reach a state of self-sufficiency that borders on autarky relative to the economic machine. Financial independence is just a side-effect of goal because people insist on giving me money whenever I provide value for them. These days, the majority of my dollar-spending pays for the “privilege” of living in/near society, e.g. real estate taxes, mandatory insurances, utility fees and taxes (higher than my actual usage). Whereas most of my time-spending goes towards learning new skills—which I [mostly] enjoy—not really using the skills as the next time is… Read more »

It is also a good way to develop interdependence in a community. Often the regular economy seems to operate on a divide and conquer fashion where every transaction happens through the market place which consumers have no control over by intentional design. They work—typically at a job that only provides value through a specialized skill—to obtain money that can only be spent at stores or in trades with other people. Pure FI eliminates the need to work but it doesn’t eliminate the need to spend money. In that sense, FI is only half of freedom. Thoreau said that “a man… Read more »

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Joe

4 years ago

We spend about $50k/year. A lot of that is housing and preschool. Our housing cost should drop quite a bit in a few years. We’re planning to move into our rental home which cost less than where we are now. School will also be free next year. Yes! I think we’ll probably move away from Portland at some point. It’s just getting more and more expensive here. I don’t know where to move to, though. Wow, Jim is living it up. 🙂

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Thehappyphilosopher

4 years ago

Nice article JD. Jacob, I like your analysis. Humans have a hard time thinking in absolute terms, thus use relativity to figure out how they are doing in like. One of the easiest ways to get richer is to find friends poorer than you 😉

I think the best way to get rich is to be completely objective and to ignore what those around you are doing. The default program in most people’s brains leads to poverty or paycheck to paycheck living. So it’s best to just override that program in your brain as much as possible.

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Lady FruFru

4 years ago

Great article and I’m loving the new blog! Frugality is not “one size fits all.” When I talk to spendy friends about frugality, they sometimes get defensive about maintaining their lifestyle. They automatically equate frugality with extreme deprivation. But the fact is, there’s an entire frugality spectrum. Everyone is different. What folks like us share is an awareness that money is a tool and if we are smart, proactive and a little lucky, we can control money to enhance our lives rather than the other way around.

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Sarah

4 years ago

Wonderful article JD. I have been implementing a lot of MMM’s philosophy into my life over the past two years. This included biking to work (6 miles one way) about 12 months ago. I would bike to work 2-5 days a week depending on weather, tiredness etc At the start of this past December I decided to give my car away and go 100% on my bike (please note my wife has a car so i still had access to a motorized vehicle). It has been 3 months of pedaling everyday and while I do on the whole enjoy it… Read more »

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Justin

4 years ago

And everyone spending at those $12k, $24k, $36k, and $48k levels all think they are living the perfect life. 🙂 We fall somewhere in the MMM $24k to your $36k range (for the household), especially after adjusting for lower COL in Raleigh NC. 1800 sf slightly below median priced home on a small lake 4 miles from downtown. Not the best neighborhood but nowhere near the worst. We just dropped to 1 car because groceries, restaurants, library, school, and parks are all within walking distance (and there are a few bus routes and Uber). We manage to swing a month… Read more »

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Hi! I’m J.D. Roth. I'm here to help you master your money — and your life.

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